In policy terms, ‘child allowance’ is a policy paid per child to all families with children. The United States has had a “child tax credit” for decades, reducing taxes and providing rebates to low-income people with children. But during the pandemic, the program was temporarily expanded in a way that transitioned it to a nearly full child benefit. that Annals of the American Academy of Political and Social Sciences A symposium of 13 papers will be held in November 2023. The question is about the impact of this expansion of the child tax credit.
(I don’t know why, but the papers in this November 2023 issue were first published in September 2024.
Megan Curran, Hilary Hoynes, and Zachary Parolin authored “The Consequences of the 2021 Child Tax Credit Expansion: An Introduction to Size.” From the abstract:
The American Rescue Plan Act of 2021 temporarily converted the Child Tax Credit (CTC) into a more generous cash benefit, distributed more frequently to families with children in the United States. From July to December 2021, more than 90% of families of U.S. children received a monthly cash payment of up to $250 per child (or up to $300 per child under 6). When filing taxes in 2022, families received a lump sum tax refund of up to $1,500 per child (or $1,800 per young child). Many of these families previously had incomes too low to qualify for the full credit. The temporary expansion did not become permanent, and CTC returned to its pre-expansion structure in 2022.
What are the effects of expansion?
Children, especially in low-income families, seem to have better lives. Anna Aizer Adriana Lleras-Muney and Katherine Michelmore “Impact of the 2021 Child Tax Credit on Child Development Outcomes:“
Child poverty rates have fallen to a record low in 2021 due to a temporary expansion of the Child Tax Credit (CTC). We consider the impact this expansion may have on children’s short- and long-term development. To this end, we review available short-term evidence from the 2021 expansion and existing research evidence on the long-term effects of similar income transfers in childhood on children’s health and human capital. We conclude that CTCs are likely to have improved children’s health and well-being in the short and long term, with greater impacts for poor children and minor or non-existent effects for non-poor children. Moreover, the effects may be greater for younger children and those in areas with weaker safety nets.
Labor force participation was not significantly affected Diane Whitmore Schanzenbach and Michael R. Strain point out in “Employment and Labor Supply Responses to Child Tax Credit Expansion: Theory and Evidence.”: “However, there is evidence of a decline in employment among relatively less educated single mothers and young children, the population groups most affected by CTC expansion.
The general implication of the argument is that full child benefits across all income levels are relatively costly and provide relatively small benefits for children from high-income families. But the 2021 experience (along with previous evidence) supports the argument for a significant expansion of the existing child tax credit.
Elizabeth Ananat and Irwin Garfinkel describe some of the early estimates of the expanded child tax credit in “Potential Long-Term Impact of a Permanently Expanded Child Tax Credit.” They describe the design and potential effects of an approximately $100 billion annual expansion of the child tax credit. They write:
We estimate the net cost of a permanently extended CTC. [child tax credit] That’s $96.8 billion per year. Of this amount, $63.8 billion is expected to be paid to households earning less than $50,000, $23.1 billion to households earning between $50,000 and $100,000, and $9.8 billion to households earning more than $100,000. …
As adults, children’s future income increases to a current discounted value of $202 billion, more than double their initial spending. These increased revenues generate $57 billion in increased tax payments that benefit taxpayers. Far greater than the increased income are the health and longevity benefits, which, using existing estimates, provide a $420 billion benefit to society. Improving health could save taxpayers an additional $13 billion in health care costs (including more than $4 billion in health insurance premium savings). Taxpayers would also save more than $300 billion from reduced spending on police, courts, incarceration and, most importantly, the cost of crime victims, and $4 billion from avoided spending on child protective services. Increasing children’s schooling costs society $70 billion. Children and parents are living longer, increasing Medicare and Social Security costs to taxpayers by $49 billion, offset by benefits to beneficiaries.
The current discounted value of benefits to society is $929 billion, nearly 10 times the initial cost. Taxpayers netted $243 billion more than their initial investment of $97 billion. This return is consistent with the large returns from other investments in children.
I have not studied the background calculations and assumptions behind their scenarios, and as they admit, these are debatable. But one thing that is true about investing in children is that the stream of potential benefits can last for a very long time.
